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RBI Issued Draft Rupee Interest Rate Derivatives (Reserve Bank) Directions: September 2020

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RBI issues draft rupee interest rate derivativesOn September 15, 2020, the Reserve Bank of India (RBI) issued Draft Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2020 under Section 45 W of the RBI Act, 1934 to allow foreign portfolio investors (FPIs) to undertake exchange-traded rupee interest rate derivatives transactions subject to an overall ceiling of Rs 5,000 crore. The RBI has sought comment on these directions by October 15, 2020.

  • This decision has been taken to encourage higher non-resident participation, enhance the role of domestic market makers in the offshore market, improve transparency, and achieve better regulatory oversight.

User Classification:

-For the purpose of offering Rupee IRD contracts to a user, the market-maker (entities which provide bid and offer prices to users in order to provide liquidity to the market) should classify the user either as a retail user or as a non-retail user.

  • Non-retail users, as per the draft, are entities regulated by RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) or Pension Fund Regulatory and Development Authority (PFRDA); resident companies with a minimum net worth of Rs 500 crore; and non-residents, other than individuals.
  • Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user.

Click Here for Official Draft

What are Interest Rate Derivatives (IRDs)?

These are contracts whose value is derived from one or more interest rates, prices of interest rate instruments, or interest rate indices.

Recent Related News:

On August 13, 2020, RBI revised the guidelines applicable for Core Investment Companies (CICs) on the basis of the recommendations of the Working Group (WG) to Review the Regulatory and Supervisory Framework for Core Investment Companies (CICs), constituted under the Chairmanship of Tapan Ray, former Secretary, Ministry of Corporate Affairs (MCA). The report by the WG was published by RBI on November 6, 2019.

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).